Major U.S. stock indexes fell and investors resumed their buying of less risky assets, putting the market’s recent recovery temporarily on hold.

Shares of companies from banks to materials firms to consumer staples retreated, as investors remained on edge over the U.S. and China’s trade conflict and how the Federal Reserve plans to proceed with monetary policy.

The Dow Jones Industrial Average and S&P 500, under pressure most of the day, accelerated their declines over the last 10 minutes of the trading session.

No major catalysts precipitated the pullback, and some analysts described the trading session as a pause while investors awaited further developments on trade and interest rates. At the same time, investors bought less risky assets, including bonds—pushing yields even lower—and other havens, such as gold.

“We’re in a quiet period watching monetary and trade policy as key drivers of the market and should help keep volatility fairly high going into the third quarter,” said
Tom Hainlin,
global investment strategist at U.S. Bank’s Ascent Private Wealth Management group.

The blue-chip index dropped 173.35 points, or 0.7%, to 25962.44, closing near its lowest point of the session. The S&P 500 fell 23.14 points, or 0.8%, to 2900.51. The losses snapped a three-session run of gains that followed one of the stock market’s harshest bouts of selling last Wednesday.

The Nasdaq Composite slid 54.25 points, or 0.7%, to 7948.56, its first loss in three trading sessions.

The selloff wasn’t unusual, some investors said, considering the Dow and S&P 500 rose 2.6% and 2.9%, respectively, over the previous three trading sessions.

That recovery had put both indexes back within 5% of their July records, and Tuesday’s pullback widened that gap again. The stock market will likely struggle to break past that watermark unless the U.S. makes progress on a resolving its trade fight with China, analysts said.

There is fatigue, said
Gregory Perdon,
co-chief investment officer at Arbuthnot Latham, adding that the market is likely in “a sideways summer of trading activity.”

Financial, material and consumer-staple stocks in the S&P 500 all fell more than 1%, reversing the gains those sectors notched a day earlier. Shares of banks were hit hard following the latest slide in bond yields, which usually make it harder for banks to make money on loans.

Energy stocks also stumbled alongside a decline in oil prices, deepening the industry’s slide this month to more than 8%.

Traders and financial professionals work on the floor of the New York Stock Exchange on Monday.
Photo:
Drew Angerer/Getty Images

Consumer-discretionary stocks reversed an earlier gain late in the session, sapping the stock market of its one pillar of support. The sector ended down nearly 0.1% despite a gain of $9.14, or 4.4%, to $217.09 among shares of
Home Depot.
The home-improvement chain reported earnings that topped expectations, even as it cut its sales forecast and warned about the potential effects of tariffs on growth.

Investors, meanwhile, moved money into other asset classes, especially the havens, which are considered more durable stores of value during economic stress.

Investors sought the safety of Treasurys, pushing prices higher for the first time in three trading sessions. That sent the yield on the 10-year Treasury note down to 1.557% from 1.603% a day earlier.

Investors also bought gold, sending the metal 0.3% higher to $1,504.60 a troy ounce and back toward its highest levels of the year.

Investors expect the volatility to continue, with several predicting a seesawing market over the next several weeks that leaves major indexes stuck in a narrow trading range. Meanwhile, many say they will pay attention to the minutes from the Fed’s latest meeting Wednesday, as well as any statements from Chairman
Jerome Powell
ahead of the economic symposium in Jackson Hole, Wyo., starting Friday.

Mr. Perdon says fears of a sharp downturn and the need for rate cuts may have been overblown, adding that the response to the financial crisis from the Fed continued to distort bond-yield curves.

“I would be surprised if members of the Fed would allow themselves to get overly intimidated by the rhetoric,” he said.

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